Six toll roads costing RM20bil on the cards


(The Star) – “Construction players aren’t exactly lining up to accept government jobs. The cost of construction is getting higher and margins are increasingly becoming squeezed.”

At least six toll roads offering construction jobs worth RM20bil are coming on stream in the next 18 months.

Two of them, the RM5.04bil West Coast Expressway (WCE) and the RM1.18bil extension of the Duta-Ulu Kelang Expressway or Duke (pic), have achieved financial close, indicating that work on the project is to start within months.

The other highways being firmed up are the RM2.5bil Kinrara-Damansara Expressway (Kidek), the RM4.18bil Sungai Besi-Ulu Kelang elevated expressway (Suke), the RM4.3bil Damansara-Shah Alam Expressway (Dash) and Ahmad Zaki Resources Bhd’s East Klang Valley Expressway.

“The construction works for all the highways should be up and running by next year,” said a construction industry official.

However, it isn’t party time for every construction company as the lack of resources and lower margins may render some of these jobs less profitable.

While on the surface, construction players may cheer at the huge amount of work that await them, the scale of these projects may be too much for them to handle.

Only big players like Gamuda Bhd and IJM Corp Bhd, who are frontrunners for jobs like the Mass Rapid Transit (MRT) Line 2 and the West Coast Expressway (WCE) jobs will be obvious beneficiaries, said the construction industry official.

For mid-tier players such as WCT Holdings Bhd, Gadang Holdings Bhd, Bina Puri Holding Bhd, TRC Synergy Bhd, Mitrajaya Holdings Bhd, Kimlun Corp Bhd and many others, it will be no walk in the park.

Competition among mid-tier players is intense, and only those who are able to efficiently manage their cost will reap the benefits from the massive artery of highways.

“Margins for civil works are at the 5%-7% level for government jobs, which nowadays is more of a norm than an anomaly,” said one construction player who is looking to bid for a few jobs in the second half of the year.

“Within the sector, we are all aware of many jobs that will be open for tender soon. It is not just the highways. We are busy now preparing our documentation and tenders,” he said.

“The Klang Valley aside, immense construction works in the Iskandar Development Region is taking place at full steam. Demand from both these regions have started to incur huge cost pressures to the sector as a whole,” he lamented.

Under these circumstances, the mid-tier players in particular, will need to be extra careful in costing their projects.

“Yes it is a given that margins moving forward will be thinner. The less efficient players will suffer,” said another contractor from a mid-sized construction player.

“It is competitive, but we rather have this situation, than no work at all. I believe there will be enough work to go round for all,” he said.

He added that thanks to the construction of the RM20bil MRT and the ongoing RM7bil Kelana Jaya and Ampang Lines LRT extension projects. many construction players were already sitting on plump order books.

Thus, if an upcoming contract offered margins that were too thin, he doesn’t foresee many takers.

Construction insiders said that the level of interest for Duke and WCE has been varied.

The expansion of the Duke is expected to add two more links to Sri Damansara and Jalan Tun Razak by 2016.

As for IJM Corp Bhd’s 38%-owned RM5.04bil WCE, it has supposedly generated strong interest within the sector.

The WCE is to be constructed by a consortium comprising Kumpulan Europlus Bhd and IJM Construction Sdn Bhd.

Sources said that subcontractors were lining up in the IJM office looking to submit their tenders for the WCE.

“With IJM being a Grade A contractor and having a strong balance sheet, its ability to make payments will be a whole lot more secure. That’s one reason for the buzz,” said one construction analyst.

The guidance for contractors is that they can enjoy margins between 6% to 8% for the WCE.

On that note, the analyst expects the awarding of tenders to be disclosed next month onwards as IJM has guided for construction works to begin in the third quarter.

Sources said that Permodalan Nasional Bhd, which is constructing Suke and the Dash has been knocking at the doors of some of the bigger construction players, checking for their availability and keenness in taking up these jobs.

The Dash is estimated to cost RM4.18bil. The planned highway begins from Puncak Perdana U10 off Jalan Batu Arang and terminates at the Penchala Link with access to both the Sprint Highway and the Damansara-Puchong Expressway (LDP).

The RM4.3bil Suke is a proposed 31.8km, elevated three-lane carriageway that will begin from the Sri Petaling Interchange (near the Bukit Jalil Stadium) and will run through Sungai Besi and Alam Damai.

“Construction players aren’t exactly lining up to accept government jobs. The cost of construction is getting higher and margins are increasingly becoming squeezed. Should there be delays or cost overruns, there will be no compensation from the government,” said one observer.

Another highway which has many of the players excited is the RM2.5bil Kidex which sources say should be achieving financial close very soon.

A construction analyst said that it would be the timing of these tenders that would determine whether players were able to bid for them.